More than half (54%) of UK employers say the national living wage, which comes into force on 1 April 2016, will have an effect on the paybill.
That’s according to research by the CIPD and the Resolution Foundation think-tank, which suggested that the retail and hospitality sectors will be hardest hit.
Four out of five (79%) retail employers, 77% of those in hospitality and 68% in the healthcare sector said they will be affected by the national living wage, the premium minimum wage rate of £7.20 for those aged 25 and over.
National living wage resources
However, when surveyed about the scale of the impact, only 18% of employers said they will be affected to “a large extent”, a figure that rose to one third in both retail (33%) and hospitality (32%).
Asked how they would respond to the national living wage, 30% of employers said they intend to manage the higher wage costs by improving productivity.
Taking lower profits or absorbing cost was the next most popular response (22%), followed by reducing overtime and bonuses (16%), raising prices (15%) and reducing the number of employees through redundancies or slower recruitment (15%).
CIPD chief economist Mark Beatson said it was a bombshell for most employers when George Osborne announced the compulsory “living wage” in the Summer Budget. “For those that have started to think about the consequences, the emphasis on efficiency rather than cost-cutting is welcome,” he added.
Conor D’Arcy, policy analyst at the Resolution Foundation, said: “It’s encouraging that so many firms say that they’ll respond to the new higher wage floor by improving efficiency.
“But actually delivering this will prove challenging in many sectors, and it’s important that firms are given the necessary support to boost productivity.”
Smaller employers (<250 staff) are more likely to have said they will respond by raising prices (25%) than larger employers (>250 staff) of whom just 10% said they will react in this way.
A higher proportion of public-sector employers (21%) said they plan to cut their workforce as a result of the national living wage than private-sector employers (13%).
The issue of whether or not to maintain pay differentials between staff who will receive the national living wage and those employees on higher pay grades appears to be splitting employers.
A quarter (26%) of firms that said the national living wage would have an impact saying they will reduce the pay gap between those affected and their managers, but exactly one-fifth said they would maintain differentials.
More than a quarter (28%) of employers think that cuts to corporation tax and national insurance will offset at least some of the extra wage costs, though only one in 10 say the tax cuts will offset most or all of the increased costs.
The survey was carried out in September among 1,037 employers.